N.J. Man Files Class-Action Over Definition of 'Basement'

A Jersey City, N.J. man has filed a federal class-action lawsuit against a group of insurers he says is denying claims based on an allegedly flawed definition of a “basement.”

The named insurance-company defendants—all issuers of flood policies under the “Write Your Own” program with the Federal Emergency Management Agency—include New Jersey Manufacturers, State Farm, Hartford, Travelers, Liberty Mutual, Selective, Assurant, Fidelity National, and Philadelphia Contributionship. The breach-of-contract suit, filed Dec. 13, also leaves the door open to include more WYO insurers.

The specific claim from Jersey City’s Patrick Donnelly stems from 2011’s Hurricane Irene. Donnelly had a flood policy issued under the WYO program by NJM’s New Jersey Re-Insurance Co.

According to court documents, Donnelly filed a flood claim but was sent a letter from FEMA late in February denying the claim based on what the suit calls an “erroneous classification of the lowest floor of [Donnelly's] building as a 'basement.'”

The lawsuit claims this alleged wrongful denial occurred numerous times to numerous home and business owners after Irene and Superstorm Sandy this year.

The suit names the insurers, rather than FEMA, because the claim denials were made by FEMA “at the request or recommendation of the particular [WYO] insurance company that issued the [standard flood insurance policy] to the insured,” alleges Donnelly.

According to court documents, the definition of a basement in Donnelly’s policy was, “Any area of the building, including any sunken room or sunken portion of a room, having its floor below ground level (subgrade) on all sides.”

The lawsuit does not detail the area of Donnelly’s home that was allegedly mischaracterized by an adjuster.

It is also unclear whether Donnelly suffered flood damage only after Irene, or if he was again flooded by Sandy.

Donnelly’s attorney, Jeffrey Bronster, could not immediately be reached for comment.

According to court records, Donnelly filed an initial lawsuit—naming only New Jersey Re-Insurance Co. as a defendant—on Oct. 9, 2012. Sandy struck the Northeast Oct. 29.

In the suit, there is no claim specific to any alleged erroneous classification of a basement. Rather, Donnelly simply says the denial was a breach of the insurance contract.

About a month later, NJM responded to the suit by saying Donnelly has no right of action.

“[Donnelly] is responsible for reading the [flood policy], as well as any renewal notices, and is presumed to know the provisions of the policy, including the insurer’s limits of liability, coverages and exclusions,” NJM writes the court.

The insurer has no incentive to act in bad faith during the claims adjusting process because, as a WYO carrier, it receives a fee for every dollar paid to a homeowner under a flood policy, continues NJM.